Motors group sees surge in pent-up demand but warns of first half pre-tax loss

Cheshire motor dealership Lookers has reported strong trading since its showrooms opened in June, but warned it will make a first-half loss due to the prior lockdown period.

The Altrincham-based group also confirmed that it will be unable to present its delayed 2019 annual figures by the end of this month due to further work being required into investigations.

Directors requested the temporary suspension of dealing in the group’s shares on July 1, after it missed a June 30 publication deadline for its results to December 31, 2019.

In a trading update today the group said business in the two months ended July 31 was “encouraging” and reflected a period where all trading locations in England were open, from June 1, followed by reopenings in Northern Ireland and Scotland on June 8, and June 29, respectively.

In June, like-for-like dealerships in England outperformed the UK new retail car market and recorded growth in like-for-like used unit sales combined with improved margin retention.

These trends strengthened in July as the group’s dealerships in Scotland reopened.

During July, on a like-for-like basis, the group invoiced and delivered more than 14,000 new retail and used units, exceeding last year by 17.0%.

Like-for-like service revenues also showed growth versus last year.

As a consequence, combined with the ongoing focus on cost and working capital control, underlying profit before tax was materially ahead of last year during July.

Lookers said the release of pent-up demand from more than two months of closure, together with an ongoing consumer trend to avoid public transport in favour of the private car, has helped to drive activity.

However, the temporary closure of the group’s dealerships throughout the lockdown period had a significant impact on its first half financial performance.

The group said it expects to report first half revenue of approximately £1.6bn, compared with £2.6bn a year ago, being impacted by the extended lockdowns in Northern Ireland and Scotland.

In addition to the revenue decline the group also experienced margin pressure in both new and used vehicles with the former impacted by reduced levels of manufacturer volume bonus receipts.

These impacts were partially mitigated by cost savings and benefits from portfolio consolidation.

Lookers said it expects to report a material underlying profit before tax loss for the first half, after receiving around £29m from the Government’s Job Retention Scheme.

On June 4, the group announced it had identified a further 12 dealerships, including seven freehold sites, for either closure, consolidation or refranchising.

As a result of this, and the 15 closures previously announced in November 2019, the group currently holds freehold property for disposal with a net book value of around £30m. These disposals will continue during the remainder of 2020 and in 2021.

Also, on June 4, the group announced that the board had considered the future structure of Lookers in light of long-term demand, a smaller dealership estate and structural changes taking place across the industry.

The board confirmed more than 1,400 roles as redundant.

Having started its restructuring plan in November 2019, by the end of September 2020, total headcount is anticipated to be approximately 6,700 a reduction of around 22% since the beginning of the initiative.

Lookers said it remains focused on driving cash flow through enhanced working capital management, portfolio management, cost reduction/restructuring and the disposal of surplus property.

As at June 30, 2020, net debt was approximately £13.5m (2019: £74.3m) after benefiting from the temporary Government deferral of tax payments.

The group’s revolving credit facility of £250m with five banks expires in March 2022, so it will be exploring refinancing options during the fourth quarter of 2020.

Lookers continues to enjoy the benefits of a property portfolio in excess of £300m.

Looking ahead, Lookers said trading in June and July has been better than expected in both vehicle sales and aftersales.

Momentum has continued into August and new vehicle order take for the important September plate change is building well.

However, although early indications are encouraging, the board remains cautious about the overall pace and sustainability of an economic recovery and the impact that could have on the consumer, and, therefore, the sale, servicing and repair of vehicles.

But it added that, with its strong portfolio and original equipment manufacturer brand partner relationships, the board continues to believe the group is well positioned to capitalise on the many future opportunities that lie ahead.

Regarding its postponed 2019 results, the board said it has concluded that publication is no longer possible by the end of August 2020, as was previously anticipated.

Following review of the final report from Grant Thornton on August 3, the board and its auditors, Deloitte, extended the scope of the 2019 audit at consolidated group and individual entity level.

The extended scope of the audit has identified further work on the group’s corporate leasing division and vehicle financing arrangements and the 2018 and earlier balance sheets to ensure correct identification and allocation of adjustments. Further work is ongoing to finalise the 2019 accounts, it said.

Lookers added: “The board continues to believe that the likely magnitude of the potential restatements referred to above will not prevent 2019 from remaining profitable at the underlying profit before tax level.”

Chief executive, Mark Raban, said today: “This has been a very challenging period for Lookers, but it is encouraging that we are beginning to see some healthy signs of recovery in vehicle sales since the easing of lockdowns.

“I would like to thank all my colleagues for their amazing commitment in difficult circumstances and the efforts they have made to adapt, innovate and improve our physical and online proposition to customers, ensuring a safe and smooth retail environment.

“I am also extremely grateful to all our other stakeholders, including our brand partners, for their support through this period.”

He added: “We remain cautious about the future given ongoing uncertainties in the wider environment, but confident in the opportunities for the Lookers business moving forward.”